OfficeMax aims for more female-friendly environment

DORIS HAJEWSKIMilwaukee Journal Sentinel

Published Saturday, January 28, 2006

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SHOPPERS WALK in and out of an Office Max store in a Columbus, Ohio. The office supplies retailer said its turnaround plan, which includes closing 110 stores, will cost the company about $100 million in 2006. By JAY LAPRETE, The Associated Press

OAK CREEK, Wis. -- Jake Petri was looking forward recently to a trip to the new OfficeMax store here to get supplies for his new desk.

"He's so excited about that wall where he can fill up a box," said his aunt, Karen Kucik, who is planning the outing as a gift for Jake, a first-grader.

Enthusiasm for a trip to an office supply store has been a rare thing in the retail world. But OfficeMax, which ranks third in sales against Staples and Office Depot, is trying to change its workmanlike image with its new, female-friendly store redesign.

Two new Wisconsin stores are among a handful around the country built with the new design.

One of the flashier parts of the new store prototypes is the colorful display wall that caught young Jake's attention. Basic supplies -- pens, pencils, erasers, rubber bands -- are displayed in plastic bubbles. Customers can choose a small, medium or large box, then reach into the bubbles and fill the box with whatever they need, all for one price.

The Itasca, Ill.-based chain also is offering customers a free cup of coffee, a newspaper and CNN on the flat screen at the new stores.

The rollout comes at a time when OfficeMax sorely needs some positive attention.

The office products chain, which lost $3.9 million in the third quarter, announced in early January it would close 110 underperforming stores in the United States and five in Canada during the first quarter of this year. The closings will reduce the company's pretax profits by $187 million, to be allocated with $41 million in the fourth quarter of 2005 and the rest in the first quarter of 2006.

OfficeMax also will record a $6 million impairment charge for the fourth quarter, reflecting the lower value of some of its stores, based on their potential to make money in the future. On top of that, the company also will take a $9 million write-off for software and other assets that aren't expected to provide future benefits.

The company has seen sales decline for three consecutive quarters, against competition from Staples, Office Depot and just about every mass retailer that carries office supplies. OfficeMax stock declined 19 percent last year.

In February 2005, OfficeMax lost its chief executive officer, Christopher Milliken, who resigned in the midst of an accounting scandal. The company now is led by Sam Duncan, who joined in April from ShopKo Stores Inc. in Green Bay, Wis. Duncan left ShopKo because the retail chain was being sold to a private equity firm.

Meanwhile, a major OfficeMax investor threatened a proxy fight last year to oust certain board members.

The investor, K Capital Partners, withdrew the threat late last year.

However, K Capital called for the sale of OfficeMax to boost shareholder value in early January.

In spite of the turmoil, the company still plans to open 70 stores this year, all with the new design, for a total of 887 stores in North America by year's end. That compares with 1,491 stores currently for Staples and 1,009 for Office Depot.

"This is our fourth major redesign," said Gary Marshall, senior vice president, Midwest, for OfficeMax. "But this is the first designed for the customer."

Kucik, who is a senior sales director for The Pampered Chef, a home-party kitchen product company, shops at OfficeMax for supplies and copy services for her home-based business.

"I am thrilled that it is so close to my house," said Kucik, of Oak Creek. Before the store opened, Kucik drove to another OfficeMax store for her supplies. This new store seems to have better signs marking each product area, Kucik said, adding that the service is great.

OfficeMax turned for help with the design to Paco Underhill, renowned in retail circles as a shopper-watching expert who translates his research into customer-friendly store designs. Underhill, who heads Envirosell, a New York consulting firm that specializes in store design, videotaped shoppers in OfficeMax stores and saw that some of what the retailer was doing just wasn't working.

For example, older stores have merchandise displayed near the entry, but people were walking right past it without stopping. So the new stores have products grouped away from the entrance, organized by categories that are marked by large signs suspended from the ceiling.

Paper and ink cartridges, the best-selling category, are placed to the right of the entry, where most people head when they walk in.

Electronics, such as phones, digital cameras and computers, are at the center of the store.

Supply categories fan out from the center like spokes in a wheel, and big-ticket items like desks and chairs are at the rear of the store.

Shelf heights are lower than in the traditional OfficeMax stores, so customers can see across the store and follow the signs to navigate through the various departments.

"Office product superstores, when invented, largely served a male constituency and were geared to small-business owners," Underhill said. Twenty years later, the stores need to respond to the surge of women in the work force, and the fact that more than 60 percent of American homes now have computers, he said.

Now, about 55 percent of OfficeMax shoppers are women. Most customers, 79 percent, choose an office store because of convenience, and they come to buy a specific item, said Ryan Vero, chief merchandising officer for OfficeMax.

"Only 3 percent come because they like the store," Vero said. "We're out to change that."

The new look, which was in the works before Duncan took over as CEO, also features soft colors on the walls. Ink-filling stations that can refill printer cartridges for about half of the price of a new, brand-name cartridge will be in new stores and eventually older stores.

Goldman Sachs, in an investor note in early January, didn't mention the redesign, but focused on the store closing announcement, calling it "the first concrete and aggressive step toward a restructuring" by Duncan. The investment firm raised its estimates for OfficeMax, but said the closings, while necessary, might not be sufficient for a real turnaround.

Neil Stern, at partner at McMillan Doolittle, a retail consulting firm in Chicago, said OfficeMax's new look is similar to what Office Depot and Staples are doing with their stores.

"What we're seeing in the office business is an evolution from the traditional category-killer to a solutions-based format that takes care of all the needs of the small-business customer."

For OfficeMax, he said, the jury is still out on whether that format can deliver a return on investment and be extended to enough stores in time to make a difference.